1. Auto Finance Rip-Offs: What is happening and what can we do to stop it? Americans for Financial Reform webinar November 8, 2012

2. Common Auto Lending Abuses Auto loan markups Yo-Yo sales Loan packing "Buy Here, Pay Here" scams 2

3. Auto Lending Abuses Dealer markup/dealer reserves: – Dealer has discretion from third-party lenders to increase the interest above the rate for which the car buyer qualifies. – Dealer takes part or all of the proceeds from the increased rate. – Similar to yield spread premiums that mortgage brokers used to charge on mortgage loans. – This practice alone adds $25.8 billion in hidden interest over the lives of many car loans. 3

4. Auto Lending Abuses Yo-yo Scams: – Dealer sends consumer home with car before financing is complete, – Consumer is brought back to the dealer with the car, – Consumer is told that interest rate will be much higher than previously thought, – When consumer tries to rescind deal, told that trade- in has been sold and/or down payment is non- refundable. – Consumer who does not return the car threatened with repossession and/or criminal charges (theft). 4

5. Tactics Used in Yo-Yo Scams Source: CRL Report - Deal or No Deal5

6. Auto Lending Abuses Loan packing: – The practice by which dealers add various types of aftermarket, “add-on” products that are usually unnecessary and overpriced in order to increase the price of the vehicle or the amount financed. – “Add-on” products include rust proofing, tire and wheel protections, paint sealant, extended warranties, security systems, insurance products, etc. 6

7. Auto Lending Abuses "Buy Here, Pay Here" scams: – Typically finance used auto loans in-house to consumers with no or poor credit histories. – Use their higher default and repossession rates to operate much like payday lenders; using same vehicle several times as the basis for their abusive business model. 7

8. 8 Contact Information: Ellen Taverna Legislative Director National Association of Consumer Advocates 202-452-1989 ext 109 ellen@naca.net